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NZ Super makes second partial exit of Z Energy

The downstream assets were acquired in a co-investment with Infratil in 2010.

The New Zealand Superannuation Fund (NZ Super Fund) intends to reduce its investment in Z Energy from 20 percent via an institutional book build.

The government savings vehicle will retain more than 10 percent of the company, chief investment officer Matt Whineray said. The sale closes on 30 September 2015.

The NZ Super Fund partnered with NZ infrastructure company Infratil in 2010 to purchase Z Energy, then the downstream assets of Shell New Zealand.

In 2013, the NZ Super Fund reduced its 50 percent stake to 20 percent by listing Z Energy on the New Zealand and Australian stock markets. The sale of the fund’s stake will be coordinated with the sale of a 20 percent stake, equivalent to 80 million shares, held by Infratil.

NZ Super had allocated four percent of its NZ$29.5 billion ($18.7 billion; €16.7 billion) portfolio to private equity, and three percent to other private markets, as of 30 June.

Direct investments account for 13 percent of the net asset value of the fund, and are managed by a direct investment team, Whineray said.

According to legislation governing the NZ Super Fund, it cannot own a controlling stake in an operating company, whether it invests on its own or as a co-investor.

Having a minority stake, however, doesn't mean the fund is passive, said Whineray. “Our decision to invest in a specific company is what makes the investment 'active' from our perspective rather than 'passive',” he said.

And even in the cases where there is a minority stake, the fund sometimes takes on a board role, either as a full board member or as an observer.

Examples of current co-investments include the fund’s partnership with Canada’s Public Sector Pension Investment Board (PSP) and Kakano Investments in forestry business Kaingaroa Timberlands, in which NZ Super holds a 41.25 percent stake.

Harvard Management Company, the endowment fund of Harvard University, retains a 28.7 percent stake in the company following PSP’s purchase of 30 percent in 2012. As part of that transaction, NZ Super upped its stake by 1.25 percent.

In March 2014, six local Maori tribes formed holding company Kokano Investment Limited Partnership and bought a 2.5 per cent stake in Kaingaroa Timberlands.

In December, the fund bought RetireAustralia, an Australian retirement village, in partnership with Infratil, for A$640.2 million ($447 million; €399 million). The transaction was split 50:50.

The NZ Super Fund also allocates about 1.5 percent of the overall fund to expansion capital via investment managers Pencarrow Private Equity, Pioneer Capital Partners and Waterman Capital.

These investments include $100 million in fuel cell manufacturer Bloom Energy, wind turbine developer Ogin, and carbon recycling company LanzaTech, in which it invested $60 million. In August, the fund also made a $75 million investment in US-based View, a manufacturer of dynamic-tinting glass.

Over the long term, with no payouts until 2031/32, the NZ Super Fund is expected to return on average between eight and nine percent per annum. Fund returns have been 16.85 percent over the last five years.